VCM15060 - EIS: income tax relief: withdrawal or reduction of EIS relief: value received by the investor: when value is received

ITA07/S216, ITA07/S217

The circumstances in which individuals receive value, and how that value is quantified for the purpose of computing the amount of a reduction of relief, are shown below. In this context references to payments or transfers to individuals include ones made to them indirectly or made to anyone else to their order or for their benefit.

Circumstances Amount
  1. The company repays, redeems or repurchases any of its share capital or securities belonging to the individual.
 The amount receivable or, if greater, the market value of the shares or securities.
  1. The company makes a payment to the individual for giving up his right to any of its the shares or securities on their cancellation or extinguishment.
 The amount receivable or, if greater, the market value of shares or securities market.
  1. The company repays any debt owed to the individual. A debt incurred after the issue of the relevant shares is not taken into account for this, unless that debt replaced an earlier debt incurred before the share issue.
The amount receivable or, if greater, the value of the debt.
  1. The company makes a payment to the individual for giving up his right to any debt on its extinguishment. (‘ordinary trade debts’ - see below - and debts in respect of payments listed at VCM11060 are excepted from this rule).
 The amount receivable or, if greater, the market value of the debt.
  1. The company releases or waives any liability of the individual to the company. In addition to an actual release or waiver, a company is treated as having released or waived liability if the individual fails to discharge a liability owed to the company within 12 months of the time when it ought have been discharged.
 The amount of the liability.
  1. The company discharges, or undertakes to discharge, an individual's liability to a third person.
 The amount of the liability.
  1. The company makes a loan or advance to the individual other than one repaid in full before the issue of the shares.
 The amount of the loan or advance.
  1. The company provides a benefit or facility for the individual.
 The cost to the company of providing the benefit facility less a consideration given for it by the individual.
  1. The company transfers an asset to the individual for no consideration or consideration less than its market value.
 The difference between the market value of the asset and any consideration given for it.
  1. The individual transfers an asset to the company for a consideration in excess of its market value.
 The difference between the market value of the asset and the consideration received for it.
  1. The company makes any other payment to the individual, except payment within VCM11060 or one made in discharge of an ‘ordinary trade debt’ (see below).
 The amount of the payment.
  1. The individual receives any payment or asset in connection with the winding up or dissolution of the company.
 The amount of the payment or market value of the asset.
  1. The individual disposes of any share capital or securities, or rights over such shares etc., to a person connected with the company. SeeVCM15070 
 The amount receivable or, if greater, the market value of the shares.

In the case of Optos plc v Revenue and Customs Commissioners (SpC 560) the Special Commissioner took the view that loan notes are a form of debt and the issue of conversion shares to repay loan notes is a receipt of value under ITA07/S216(2)(b).

In the case of Blackburn & Another v Revenue and Customs Commissioners (SpC 606) the Special Commissioner considered value received in relation to payments made to the company in advance of a share issue. In contrast to Optos the payment in advance in this case was not considered to create a debt and no value was received by the issue of the shares as there was a clear intention that the payment was intended to be used to subscribe for shares to be issued at a later time.

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Ordinary trade debt

This is defined at ITA07/S216(10) as any debt for goods and services supplied in the ordinary course of a trade or business where any credit given does not exceed six months and is not longer than that normally given to the customers of the person carrying on the business.

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